September 18, 2017

They Said It Couldn't Be Done

I'm listening to the grinding sound of FUD over cryptocurrencies. It's annoying me to no end. I'd just like to review a few things I've heard in the past from the technically illiterate in consideration of the future of information technology.

They said software would always and only be used by scientists for science, or by engineers for engineering but that business managers would never have computers on their desks. They said that only businesses would never use UNIX and that IBM would put all of those other guys out of business. They said that TCP/IP was never going to replace Banyan Vines in businesses. They said that AS/400 was an unbeatable operating system for business and that peer to peer networking wasn't necessary. They said that Token Ring was superior to Ethernet and would win in the marketplace.

They said that Triple DES was as secure as cryptography could get and that anything more secure than that could never be in the public domain. They said that MP3s and file sharing was only for piracy. They said the music industry would never go along with something like MP3s. They said that the taxes applied to the sales of blank CDs would satisfy the artists and labels to makeup for money lost to piracy. They said that the addition of digital music would shrink the entire market. They said podcasts wouldn't matter and could never compete with content on broadcast TV.

They said that AOL / TimeWarner would be the industry leader and determine the future of content delivery on the internet. They said the Steve Case was the most brilliant businessman who understood IT. They said that nobody would be able to solve the last mile problem of fiber to the home. They said broadcast TV would last forever. They said nobody in the mainstream would ever buy $2500 computers. They said nobody would sell personal computers to the public on credit. They said Scientific Atlanta was the only company that could win the settop box wars. They said there could be no possible business model that would satisfy the major studios and convince them to put their best properties online.

They said ecommerce was doomed because nobody would trust putting their credit card information online. They said that travel agents were here to stay because websites could never be sophisticated enough to handle airlines, hotels or car rental agencies. They said money lost in the dot com bubble proved bricks would always beat clicks. They said all of Silicon Valley was like Pets.com.

They said that the digital divide was permanent and there was actually no good reason for black Americans to go online. They said that nobody would get news from online and that online advertising was not enough to sustain any real business model. They said bloggers could never influence real opinion. They said that Presidential campaigns didn't need to pay attention to 'netroots'. They said people who sat in front of terminals to write onto the internet couldn't be taken seriously, that it was all virtual and had no impact on real life.

They said nobody would buy books online. Then they said nobody would buy shoes online. Then they said nobody would buy clothes online. Then they said nobody would buy groceries online. They said nobody would file their taxes online. They said nobody would pay bills online. They said nobody would buy cars online. They said nobody would rent apartments online. They said nobody would buy and sell securities online. They said nobody would contribute to charities online.

They said Blockbuster was not threatened by online upstarts. They said Microsoft couldn't build a gaming console. They said the Blackberry was the business phone. They said Nokia could never be threatened by Apple. They said people would never watch video and movies on their phones. They said there was no use for wireless internet connectivity. They said wifi was only for the elite, not ordinary people. They said there would never be wifi on commercial airliners. They said a free operating system could not beat Microsoft Windows. They said separating the browser from Windows would kill Microsoft. They said applications run on browsers would never replace fat clients.

They said open source software could not beat proprietary software. They said databases on mainframes would never be threatened by decentralized databases. They said no serious business could be run without a bricks address. They said ordinary people would not need or want 64bit computers. They said videogames could never make as much money as movies. They said tablets were ridiculous and nobody would have a tablet and a phone. They said Facebook was just for teens. They said Twitter was just for teens. They said online dating was just a fad. They said proprietary software was more secure than open source software.

So is a single bitcoin worth $500,000, $5,000, $500 or $0? I’m inclined to say $0, especially if bitcoin’s value depends on it being adopted as a global digital currency to replace dollars. There is no chance whatsoever that bitcoin can displace the dollar, for the simple reason that it is badly designed. Bitcoin can handle a pathetically small number of transactions, and uses an inordinate amount of electricity to do so, making it entirely unsuitable to replace ordinary money.

Even if bitcoin worked better, it is in a Catch-22 because of Gresham’s law, the nostrum that bad money drives out good. Given the choice of spending inflationary government-issued money or something which holds its value, everyone would spend the bad paper stuff and hoard the bitcoin. You wouldn’t want to be the person who spent 10,000 bitcoins on two pizzas in 2010, when a bitcoin was worth a fraction of a cent. Those bitcoins are now worth $40 million. But if no one spends bitcoin, it will never get established as a currency.

Bitcoin's value depends upon the genius of its invention and the conviction of those engineers and investors who understand that and their willingness to build upon its technology. Same as any other invention. The world will make room for it because it works better than the alternatives. The genie is out of the bottle. It will be adapted and perfected. It is inevitable. Why? Because the idea is entirely too massive to be ignored, just like open source software. Except digital currency is even bigger. It's bigger than junk bonds in the 80s. It's bigger than rural electrification in the 30s. It's about as big as double entry accounting. That's how deep this is going to go. I guarantee you.

But there's basically one conspiracy, and that is to keep Coinbase as the only exchange in the US with access to a bank account. I can't imagine there will be no other bank to take on that challenge, but I can imagine people at the SEC being whispered to.

Comments

They Said It Couldn't Be Done

I'm listening to the grinding sound of FUD over cryptocurrencies. It's annoying me to no end. I'd just like to review a few things I've heard in the past from the technically illiterate in consideration of the future of information technology.

They said software would always and only be used by scientists for science, or by engineers for engineering but that business managers would never have computers on their desks. They said that only businesses would never use UNIX and that IBM would put all of those other guys out of business. They said that TCP/IP was never going to replace Banyan Vines in businesses. They said that AS/400 was an unbeatable operating system for business and that peer to peer networking wasn't necessary. They said that Token Ring was superior to Ethernet and would win in the marketplace.

They said that Triple DES was as secure as cryptography could get and that anything more secure than that could never be in the public domain. They said that MP3s and file sharing was only for piracy. They said the music industry would never go along with something like MP3s. They said that the taxes applied to the sales of blank CDs would satisfy the artists and labels to makeup for money lost to piracy. They said that the addition of digital music would shrink the entire market. They said podcasts wouldn't matter and could never compete with content on broadcast TV.

They said that AOL / TimeWarner would be the industry leader and determine the future of content delivery on the internet. They said the Steve Case was the most brilliant businessman who understood IT. They said that nobody would be able to solve the last mile problem of fiber to the home. They said broadcast TV would last forever. They said nobody in the mainstream would ever buy $2500 computers. They said nobody would sell personal computers to the public on credit. They said Scientific Atlanta was the only company that could win the settop box wars. They said there could be no possible business model that would satisfy the major studios and convince them to put their best properties online.

They said ecommerce was doomed because nobody would trust putting their credit card information online. They said that travel agents were here to stay because websites could never be sophisticated enough to handle airlines, hotels or car rental agencies. They said money lost in the dot com bubble proved bricks would always beat clicks. They said all of Silicon Valley was like Pets.com.

They said that the digital divide was permanent and there was actually no good reason for black Americans to go online. They said that nobody would get news from online and that online advertising was not enough to sustain any real business model. They said bloggers could never influence real opinion. They said that Presidential campaigns didn't need to pay attention to 'netroots'. They said people who sat in front of terminals to write onto the internet couldn't be taken seriously, that it was all virtual and had no impact on real life.

They said nobody would buy books online. Then they said nobody would buy shoes online. Then they said nobody would buy clothes online. Then they said nobody would buy groceries online. They said nobody would file their taxes online. They said nobody would pay bills online. They said nobody would buy cars online. They said nobody would rent apartments online. They said nobody would buy and sell securities online. They said nobody would contribute to charities online.

They said Blockbuster was not threatened by online upstarts. They said Microsoft couldn't build a gaming console. They said the Blackberry was the business phone. They said Nokia could never be threatened by Apple. They said people would never watch video and movies on their phones. They said there was no use for wireless internet connectivity. They said wifi was only for the elite, not ordinary people. They said there would never be wifi on commercial airliners. They said a free operating system could not beat Microsoft Windows. They said separating the browser from Windows would kill Microsoft. They said applications run on browsers would never replace fat clients.

They said open source software could not beat proprietary software. They said databases on mainframes would never be threatened by decentralized databases. They said no serious business could be run without a bricks address. They said ordinary people would not need or want 64bit computers. They said videogames could never make as much money as movies. They said tablets were ridiculous and nobody would have a tablet and a phone. They said Facebook was just for teens. They said Twitter was just for teens. They said online dating was just a fad. They said proprietary software was more secure than open source software.

So is a single bitcoin worth $500,000, $5,000, $500 or $0? I’m inclined to say $0, especially if bitcoin’s value depends on it being adopted as a global digital currency to replace dollars. There is no chance whatsoever that bitcoin can displace the dollar, for the simple reason that it is badly designed. Bitcoin can handle a pathetically small number of transactions, and uses an inordinate amount of electricity to do so, making it entirely unsuitable to replace ordinary money.

Even if bitcoin worked better, it is in a Catch-22 because of Gresham’s law, the nostrum that bad money drives out good. Given the choice of spending inflationary government-issued money or something which holds its value, everyone would spend the bad paper stuff and hoard the bitcoin. You wouldn’t want to be the person who spent 10,000 bitcoins on two pizzas in 2010, when a bitcoin was worth a fraction of a cent. Those bitcoins are now worth $40 million. But if no one spends bitcoin, it will never get established as a currency.

Bitcoin's value depends upon the genius of its invention and the conviction of those engineers and investors who understand that and their willingness to build upon its technology. Same as any other invention. The world will make room for it because it works better than the alternatives. The genie is out of the bottle. It will be adapted and perfected. It is inevitable. Why? Because the idea is entirely too massive to be ignored, just like open source software. Except digital currency is even bigger. It's bigger than junk bonds in the 80s. It's bigger than rural electrification in the 30s. It's about as big as double entry accounting. That's how deep this is going to go. I guarantee you.

But there's basically one conspiracy, and that is to keep Coinbase as the only exchange in the US with access to a bank account. I can't imagine there will be no other bank to take on that challenge, but I can imagine people at the SEC being whispered to.